Harold Wilson once stated that ‘a week is a long time in politics’, and this has been highlighted clearly recently. The first draft of this article is now in the bin, as it discussed the thoughts and expectations of the first ever Budget delivered by the Chancellor, Sajid Javid, promising an ‘infrastructure revolution’.
However, after a falling out with Number Ten, Mr Javid took his place on the back benches and Rishi Sunak took over as Chancellor in Number Eleven. However, we expect little to change, as time is tight to make any amendments and you sense this was a personality battle rather than a policy one. The ‘infrastructure revolution’ was Government language, rather than Sajid Javid language and this is still expected to drive policy.
More interestingly, this is the first major Spring Budget since 2017. The Budget Statement had been moved to the autumn by Philip Hammond mainly to give Revenue enough time for any changes to be put in place for the following tax year. A March Budget tended to cause issues due to the short run between any announcements made and the new Tax Year on 5th April. However, having our first December General Election since 1923 and a requirement to ‘get Brexit done’ meant that we were in a position where a March Budget was almost inevitable.
This Budget is also very different to many others we have had for some time. The country now has a majority Government and we are finally post Brexit, at least in terms of the withdrawal agreement being put in place. Irrespective of how you feel about either of those factors, it is clear that we are at least in a position where we can get things moving forwards. We are also well over four years away from another general election, so you sense this feels like a good time for a Government to be raising revenue, which will be required if the ‘Infrastructure revolution’ is going to happen.
There are two traditional ways of doing this. One is to increase borrowing levels, the second is by raising taxes. Of course, a final solution is to use a combination of the two. So, where do we see any potential for changes that will raise revenue?
Well, we expect Inheritance Tax (IHT) to be on the radar. The Government is aware that IHT is perceived as an unfair tax, with people feeling that it taxes hard earned savings that had already no doubt been taxed. It is also a very unpopular tax with the general population and Philip Hammond had already instructed the Office of Fiscal Responsibility to draw up some thoughts and ideas about potentially simplifying the Tax. Therefore, you sense that work has already been done on any changes that are required.
However, many Chancellors have considered changes to IHT and we are often left with a more complicated system than we started with. Further to that, a record £5.4bn was raised in Tax Year 18-19 and so it is quite clear that this tax cannot be abolished without something else being put in place. Bearing in mind that he has a requirement to raise revenue, he is hardly likely to start with a £5.4bn hand out.
There has been no mention of Income Tax changes although the Prime Minister, Mr Johnson, did start his push for the Tory Leadership by suggesting that the Higher Rate personal allowance should be set at £80,000, which is substantially higher than where it is now. Whilst we have no expectation that this will happen, you would expect him to continue to support the push for a higher living wage and higher personal allowances generally, especially with a more amenable Chancellor, as it were. But, once again, this is expensive and will need to be paid for.
So, how else can money be raised, if not by raising tax?
Well, Personal Pension Tax Relief is always a hot topic and it has been classed as ‘low hanging fruit’ for some time now. Successive Governments have been trying to restrict how much can be paid into a Personal Pension and this culminated in the Annual Allowance Tapering rules that were introduced in 2016 to restrict Tax Relief for high earners. However, this has not been a great success, especially in light of some high earners in the NHS being adversely affected by the rules. It is clear that changes need to be made here and a review was promised by the Prime Minister within 100 days of coming to office. Whether now is the right time to make wholesale pension tax relief changes is a completely different conversation.
Clearly, we can only speculate on what will happen, as the Government commits to the idea of the Infrastructure Revolution. Whilst we are trying to read between the lines of language used by the Government, it is interesting to see what the new Chancellor does. Whilst he is in a different position to many of his predecessors, with regards to a more stable Government being in place, he has very little time to learn the ropes. However, as he moves into his new premises in no. 11 Downing Street, you sense he will get a lot of help from the friendly neighbour next door.
We will naturally be keeping a very close eye on what happens on March 11th and will be forwarding a Budget Summary to you in the few days following the event, covering any key changes announced.
Shortly afterwards, once the dust has settled, we will then provide you with a more detailed synopsis of how these changes will affect your finances and what we need to be doing, if anything, going forward.
That is assuming nothing changes between now and March 11th. As Mr Wilson said, a week is a long time in politics.